UNITED STATES of America, Plaintiff-Appellee, v. Yan KATS, Defendant-Appellant
1989 WL 29374, 871 F.2d 105, 1989 U.S. App. LEXIS 4255 (1989)
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Rule of Law:
A payment constitutes an illegal kickback under the Medicare anti-kickback statute if one purpose of the payment is to induce the referral of services, even if the payment is also intended to compensate for legitimate professional services.
Facts:
- Lauro Manigbas, owner of Tech Diagnostic Medical Lab (Tech-Lab), agreed to pay a 50 percent kickback to Total Health Care (THC), a company owned by David Smushkevich, for patient referrals.
- Under the scheme, THC collected blood and urine samples, forwarded them to Tech-Lab for laboratory work, and Tech-Lab would kick back half of the Medicare payments it received as a result.
- In 1985, Smushkevich and Manigbas established an identical kickback scheme involving Tech-Lab and Smushkevich's new company, A Community Medical Clinic (Community Clinic).
- Yan Kats purchased a 25 percent ownership interest in Community Clinic.
- After becoming a part-owner, Kats began collecting payments generated from the kickback scheme between Community Clinic and Tech-Lab.
Procedural Posture:
- A federal grand jury returned two related indictments charging Yan Kats and his co-conspirators with conspiracy to commit Medicare fraud and receipt of kickbacks.
- The U.S. District Court consolidated the two indictments for a single trial.
- Kats's motion to sever his trial from his co-defendants was denied by the district court.
- At trial, the government witness Lauro Manigbas testified against Kats pursuant to a plea agreement.
- A jury convicted Kats on one count of conspiracy and one count of receipt of kickbacks but acquitted him on a charge of solicitation.
- Following his conviction and sentencing, Kats (appellant) appealed to the United States Court of Appeals for the Ninth Circuit, challenging his conviction.
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Issue:
Does a payment arrangement violate the federal Medicare anti-kickback statute if the payment compensates for legitimate services but is also intended, in part, to induce the referral of future Medicare-funded business?
Opinions:
Majority - Per Curiam
Yes, a payment violates the Medicare anti-kickback statute if one purpose of the payment is to induce referrals, even if it also compensates for legitimate services. The court adopted the reasoning of the Third Circuit in United States v. Greber, which held that the statute is violated if 'one purpose of the payment was to induce future referrals.' This interpretation is supported by the legislative history of the Medicare-Medicaid Anti-Fraud and Abuse Amendments, which were enacted to combat the growing problem of fraud by broadening the scope of proscribed payments. The court reasoned that even if a physician performs some service for the money, the potential for an unnecessary drain on the Medicare system remains, which is the harm the statute seeks to prevent. The court also rejected the defendant's other arguments, finding that the admission of a witness's plea agreement was not improper vouching because the defense counsel had first attacked the witness's credibility regarding the agreement, and any potential prejudice was cured by the court's jury instructions.
Analysis:
This decision formally adopts the 'one purpose' test for the Medicare anti-kickback statute within the Ninth Circuit, significantly broadening the scope of liability for healthcare providers. By affirming that a violation occurs even if inducing referrals is just one of several purposes for a payment, the ruling makes it extremely risky for providers to enter into financial arrangements that could be perceived as rewarding referrals. This stringent standard requires providers to scrutinize any compensation arrangement to ensure it is not tainted by any improper motive, thereby influencing the structure of healthcare business relationships to avoid the appearance of impropriety.
